The Economist explains
Who is Lael Brainard, progressive Democrats’ choice to lead the Fed?
Tough on Wall Street, her chances of succeeding Jerome Powell have risen
HEAD OF THE Federal Reserve, America’s central bank, is the most important job in global economics. That is because of its unmatched influence over financial markets in America and, by extension, the world. Its current occupant, Jerome Powell, will reach the end of his first term on February 5th. Most analysts and investors expect that President Joe Biden will re-appoint him for another four years, a recognition of the Fed’s forceful monetary interventions at the height of the pandemic. But this is far from guaranteed. The most talked-about alternative candidate is Lael Brainard, a Fed governor. Who is she, and what would her appointment mean for the economy?
Ms Brainard, a Harvard-trained economist, has sat on the Fed board since 2014. She has been in and out of government jobs since the 1990s, including as the Treasury department’s undersecretary for international affairs—in effect, America’s most senior economic diplomat—under Barack Obama. At the Fed she has emerged as the strongest voice for stricter regulation of the financial industry.
Last October, for example, she criticised an easing of liquidity requirements for banks, warning that cash buffers are needed to prevent banking mishaps from posing a “serious contagion risk” to the wider economy. She has also dissented from rule changes allowing banks to engage in more proprietary trading and to hold less capital. A report in July by Better Markets, a group that calls for more supervision of Wall Street, praised Ms Brainard, noting how rare it was for a Fed governor to vote against the majority on regulatory decisions.
Her record has also earned her support from the progressive wing of the Democratic Party. Elizabeth Warren, an influential senator, has commended Ms Brainard for her “strong and powerful dissents”, while calling Mr Powell a “dangerous man” because of his penchant for cutting regulations. Given the clout that progressives have had in shaping Mr Biden’s personnel decisions, their backing for Ms Brainard would seem to boost her chances at the Fed. Before the “dangerous man” comment in September, the probability of Mr Powell’s reappointment stood at about 90%, with Ms Brainard’s candidacy around 10%, according to PredictIt, a betting website. Now, Mr Powell is down to 70% and Ms Brainard is up to about 20%.
Yet as those odds suggest, Ms Brainard remains a long shot. Many of the left-wing Democrats who like her today were opposed to her one year ago when she was in the picture as a candidate for Treasury secretary, a job that eventually went to Janet Yellen (a former Fed chairwoman herself). Some pointed to Ms Brainard’s time in the Obama administration, when she helped to craft trade deals seen as unhelpful to workers. Others castigated her for failing to do enough on environmental concerns while at the Fed. And despite her current reputation as a Fed outsider, Ms Brainard is a consummate Washington insider. Her husband, Kurt Campbell, is Mr Biden’s top adviser on Asia. She is not quite the progressive darling some have made her out to be.
In any case, were Ms Brainard to replace Mr Powell, it is not obvious that the most consequential part of the Fed’s work—its management of monetary policy—would change much. Mr Powell has been very doveish and is only now guiding the central bank towards gradual tightening, though inflation is running at its fastest pace in more than a decade. Ms Brainard may be inclined to wait even longer before ending the Fed’s ultra-loose monetary policy, but as chair she would still have just one vote out of twelve on its rate-setting committee. A compromise solution would be for Mr Biden to name Ms Brainard as the Fed’s vice-chair responsible for banking supervision, a position now vacant. That would give markets what they want: continuity in the form of Mr Powell’s chairmanship. But it would also progressives at least some of what they want, with the elevation of Ms Brainard to a crucial watchdog role, albeit not the most important job in the global economy.
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